What is an adjustable life insurance plan? Can this be done for a term plan?

—Gautam Chopra

An adjustable life insurance gives the option of changing the plan’s specifications during the term of a plan. Changes can be made to the sum assured, premium amount and policy’s premium-paying period. Such changes can be done in several unit-linked insurance plans (Ulips). A term plan does not offer such flexibility. As an alternative, you could explore term plans that have increasing or decreasing sum assured; or buy term plans of smaller denomination with varying policy periods. Traditional insurance plans are the least adjustable, so you must be very sure of what you want before making a purchase.

Are there any tax benefits of making a lump sum investment versus a top-up investment ?

—Arun Kumar

Tax benefits for a single premium policy or a top-up payment in a regular premium paying policy are similar. Contributions of up to Rs1.5 lakh can be deducted while calculating the taxable income of an individual. This is capped up to 10% of the death benefit in the plan. Maturity proceeds of a life insurance policy are exempt from tax, if premium is less than 10% of sum assured. Death benefit is tax free.

I recently purchased a term plan of Rs1 crore and paid a premium of Rs12,400. But, after my medical check-up the insurance company said that I have hyper tension and increased my premium by Rs5,000. I get my medical check-up done on a regular basis and have never been diagnosed with such an ailment or physical condition. What are my options in this case?

—Hiten Bhojani

This is called a counter-proposal from the insurer. Insurers are allowed to accept, reject or rate-up a proposal. You can ask for the medical reports on which the insurer based its decision.

If you are not convinced with the reports, you have the option to reject the counter-proposal. In this case, the insurer will refund the entire premium to you. If you accept the proposal, your annual premium for the entire term of the plan will be as per the revised offer. Insurers generally have a logical basis for premium loading. So, unless you are absolutely certain about your health, don’t reject the counter offer. You are also within your rights to question the insurer for the basis of the premium increase.

I have read that every individual can only buy life insurance of a certain value. So, even if I can afford to pay premiums of 3 term plans with total sum assured of Rs3 crore, I might be eligible for only buying insurance up to Rs1 crore. Is that true? If yes, then what should I do to increase this cover?

—Tarun Borah

The amount of life insurance one can buy is a function of your annual income and age. Typically, insurers issue life cover up to 25 times a person’s annual income, for a 35- year-old. With age, this multiple decreases.

In case you do not get your desired sum assured, you should still buy a plan with maximum possible cover now. As your income increases, you should buy new plans with higher sums assured.

Separately, augment your life cover through a personal accident insurance plan. Cover taken for personal accident insurance does not reduce the sum assured eligibility for life insurance. A personal accident insurance will give cover only for accidental death and not natural death.

It has a specified set of exclusions. The advantage of a personal accident policy is that it covers disability in addition to death.

Premium for a personal accident plan is usually not linked to age, and is approximately Rs10,000 for Rs1 crore of sum assured. Insurers are more liberal while underwriting personal accident plans.